Why China Doesn’t Produce Disruptive Technologies…Yet

I’ve been thinking about China’s political system for the past few days, since I watched this TED Talk by Shanghai VC Eric X. Li (who, for the record, I think is full of crap). Li’s argument is far too tangential to technology to discuss here, but it has caused me to reflect on the ways in which China’s political system affects its technology sector. And I think that China’s biggest disadvantage in the global technology game may be that its system discourages disruptive technology.

Although China has shifted from a socialist economy to a capitalist one over the past three decades, vestiges of the old system still remain. Whole industries — including the internet and telecom industry — are totally dominated by massive-state owned companies run by government bureaucrats. The problem with this, of course, is that the state both owns these companies and sets the policies that regulate their industries. Often, this means that state policy squashes innovative and disruptive new technology simply because it would be unwanted competition for the state-owned firm.

Perhaps the best recent example of this is China’s online train ticket sales platform. The thing reportedly cost nearly $100 million, but it was (and to some extent remains) buggy, sometimes-broken, and very user-unfriendly. This was possible because it fell under the auspices of China’s Railway Ministry, which maintained an absolute monopoly over the process, shutting down third-party apps, add-ons, and websites that attempted to simplify the process for users. Instead of allowing private Chinese companies to take aim at the train ticket purchase system and possibly disrupt it for the better, the government banned them from participating at all.

The good news is that things seem to finally be getting better. Over the past few months, we’ve seen the government refuse to intervene to protect China’s giant state-owned telecoms from WeChat even though the app is eating into their phone revenue. And after early indications local governments were trying to stamp out the taxi app industry entirely, the city of Beijing at least has reversed its position somewhat and allowed the apps some room to grow. The Railway Ministry has also been disbanded and trains are now under different authority, so there’s hope that more innovation and disruption will be allowed in that space, too, although we haven’t actually seen much yet.

China is already producing top tech talents and they are more than capable of creating all kinds of innovative and disruptive projects. The next challenge for China’s government may simply be to get out of the way so that these people can disrupt industries in new ways that are good for consumers — even if that disruption shakes up the status quo and poses new threats to state-owned firms or state-controlled industries.